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Is the Brexit Effect on Forex Trading Still Going?

by ETF Base on July 26, 2016

The effect of the Brexit was always going to be huge for the forex markets, but few could have predicted just how big. Many traders and investors switched to safe haven currencies such as the Japanese yen and Swiss franc in the run up to the referendum, leading to big shifts in the markets. In the immediate aftermath of the result there were great movements in retaliation to Brexit, but over a month on, is the effect still being felt?

Uncertainty the Normal

In a recent statement from Barclays, they claimed that Brexit seems to have ushered in a period of uncertainty to the markets that has become the new normal. Broad implications from the referendum result are economic and political and traders look like they will have to get used to continuing uncertainty and increased market risk. This suggests that not only is the effect of Brexit still being felt, but that it will continue to be well into the future.

The Pound’s Recovery

The value of the pound in a post-Brexit world is the major concern for most British people and forex traders. Immediately after the result was announced the pound plummeted, eventually to new lows that it hadn’t seen in 30 years. While there was a mini recovery, it has still failed to meet pre-Brexit levels almost a month after it started to drop in value. There are hopes of a recovery, but at the moment most traders seem to still be avoiding the British currency.

Euro and the ECB

The euro was obviously affected a lot by Brexit, strengthening a lot against the pound yet not keeping up with the US dollar, Japanese yen and some others. In order to battle this, the European Central Bank (ECB) has a few new policy ideas to help strengthen the euro, which it may put into action soon. This demonstrates that the euro itself hasn’t fully recovered from the shock of Brexit, if the ECB has to get involved.

Future Implications

Even though the UK has voted to leave the EU, the wheels are set to get into motion regarding negotiations and actually leaving. When the UK does actually leave, expect the pound to again weaken and more uncertainty to affect the markets, which could last as long as two years. It does offer some good forex trading opportunities through Oanda, during this exciting time for currency markets across the world.